As is often the case, when a presidential administration changes, so may a prior rule issued by the National Labor Relation Boards (NLRB or the Board). On February 21, 2023, the Board returned to its pre-Trump administration rule: broad confidentiality and non-disparagement terms in severance agreements will be deemed unlawful if they tend to interfere with, restrain, or coerce an employee's ability to speak about the severance agreement or otherwise communicate with other employees about their former employer. The prior Trump-era rulings allowed employers to include confidentiality and non-disparagement clauses in severance agreements, but the NLRB's latest ruling in McLaren Macomb reverts to the old rule placing employers in an uncertain situation with their current and future severance agreements.
The McLaren Macomb Decision
McLaren Macomb is a hospital in Michigan that employs both unionized and non-unionized employees. McLaren Macomb temporarily furloughed 11 of its unionized employees following COVID-19 guidance that prohibited non-essential employees from working in the hospital. When the employer permanently furloughed the employees, it presented each employee with its standard "Severance Agreement Waiver and Release," which offered to pay the employees severance if they signed the Agreement. The Agreement contained both confidentiality and non-disparagement provisions that, among other things, prohibited the employees from disclosing the terms of the severance agreement and disparaging the employer.
The Board reversed the administrative law judge's (ALJ) initial determination that the severance agreements were lawful. The ALJ relied on Trump-era Board rules for upholding confidentiality and non-disparagement terms in severance agreements. See Baylor University Medical Center, 369 NLRB No. 43 (2020); IGT d/b/a International Game Technology, 370 NLRB No. 50 (2020). The new Board reversed course, holding that the employer's proffer of a severance agreement containing the confidentiality and non-disparagement clauses violated the Act because the clauses have a tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights to discuss terms and conditions of employment with co-workers, former employees, the union, any government agency, and any third party in which communications may affect a labor dispute. It did not matter whether the employer intended to enforce the confidentiality and non-disparagement promises. According to the new Board, the proffer of a severance agreement with those clauses was sufficient to establish a violation of the Act.
What Does McLaren Macomb Mean for Employers?
McLaren Macomb suggests that employers may not enforce broad confidentiality and non-disparagement clauses in their severance agreements. Employers—unionized or not—that do not heed this new rule may face an unfair labor practice charge. Until the Board develops further precedent on this issue, the consequences of losing an unfair labor practice charge in this context are unclear. In a worst-case scenario, the entire severance agreement could be invalidated. Alternatively, the severance agreement (including any release of claims therein) could be enforced, absent the portions related to confidentiality and non-disparagement. Of course, confidentiality and non-disparagement clauses are often key incentives for an employer to enter into a severance agreement in the first place, and carving these provisions out as unenforceable may undermine the value of the agreement for the employer.
It is not all bad news for employers, however. McLaren Macomb likely does not apply to employees who are not covered by the Act, such as managers and supervisors defined under the NLRA. As a result, employers likely may enforce traditional confidentiality and non-disparagement clauses in severance agreements for senior-level executives and other managers or supervisors—the same types of employees who are typically excluded from eligibility for union membership.
In addition, McLaren Macomb left open the possibility that a confidentiality or non-disparagement clause in a severance agreement could still be enforceable if it is narrowly tailored. The Board suggested that statements of a "disloyal, reckless or maliciously untrue" nature could still be prohibited by mutual agreement of the parties. Future Board decisions may offer more guidance on what is and is not a permissible restriction on former employee communications.
What Should Employers Do Next?
The following are some practical suggestions for employers in light of McLaren Macomb:
- Review current severance agreements to determine whether they contain broad confidentiality or non-disparagement clauses that may violate the Board's rule.
- Review employee handbooks and similar employment policy documents to determine whether they contain similar clauses that may need modification. Note that the NLRB has signaled an intent to return to a similarly restrictive rule governing handbooks and workplace policies.
- Identify employees who fall outside the purview of the NLRA, whether because they are managers, supervisors, or otherwise, to determine whether the organization may still condition severance payments to those types of employees upon confidentiality and non-disparagement promises.
- Consider adding savings clauses to severance agreements that set forth the parties' mutual understanding that nothing in the severance agreement is intended to prohibit an employee's exercise of non-waivable rights under Section 7 of the NLRA.
- Consider adding severability clauses to severance agreements that express the parties' mutual intent for the enforcement of the severance agreement to the maximum extent permitted under law.
Venable's Labor and Employment Group will monitor any developments by the NLRB and courts on this issue. If you have specific questions about the McLaren Macomb decision or any forthcoming NLRB decision, please contact the authors of this alert.